pension

[CliveH]

Seems like a plan to me!

 

 

 

[Dave225]

Clive,

 

All you say is true but always forgets that most people are not in the brackets you define. If I had a 200K pension pot I would not be worrying, and yes, I would get someone to look after it for me. But the original discussion was about pension pots of £18000 or less, a totally different thing.

 

If you are on the normal scale of things many people find that on retirement their income is around the tax threshold so the differences are not nearly so marked. Yes ISA's are Capital Gains tax free but if you have investments whereby your profit from selling is over £10900 per year then you have quite an income. Plus all ISA investments carry charges. Not excessive but there every year and again it is the size of the investment that will define whether this is the best way forward. A non ISA investment is income tax free if you are a basic rate tax payer, again if you are on higher rate tax, then this discussion is not for you as you will be supping Champagne cocktails somewhere and letting your highly paid adviser do the work for you. Bluntly, at the bottom end the difference is marked more by the charges than the savings.

 

I am not knocking ISA's, we do have some but I am also very suspicious when so called financial advisers stress 'this is the only way to go' After all these are the same advisers who a few years back advised everybody to get Endowments and Pensions, which some of us now have to sort out. The track record is not very good is it? Plus there is no guarantee that future Governments may not change the rules on ISA's, after all they are greedy b......s are they not? We have already seen a squeeze on cash ISA'a being transferred to better homes, why not the rest? Do you really wish to tell me that you believe Balls will do a good job when he gets his hands on the cash tills? The other factor is that there is a limit on an annual investment in ISA's as you have stated. You cannot put £200k into an ISA unless you take 17 years doing it. If you are retired then it is possible you may not have that time and what do you do with the the rest of the 200K in the meantime. You cannot take the cash so it is either an annuity or drawdown, and even that is suspect for future changes.

 

 

Sorry Clive, I know you mean well, but you do really need to get out of the office sometimes and see the real world. Most of us do not have 200K pension pots unfortunately.

[Guest pelmetman]

Dave225 - 2014-01-24 8:44 PM

 

Sorry Clive, I know you mean well, but you do really need to get out of the office sometimes and see the real world. Most of us do not have 200K pension pots unfortunately.

 

200K would get 10k a year?........so pay back in 20 years...........providing you reach 85 :-| ...........the numbers seem to favour the pension companies :-S....

 

 

[Tracker]

pelmetman - 2014-01-25 8:49 AM

 

200K would get 10k a year?........so pay back in 20 years...........providing you reach 85 :-| ...........the numbers seem to favour the pension companies :-S....

 

 

It's called the 'Open Market Cartel' where all the providers collude to offer poor rates to a captive audience - much like energy prices.

[CliveH]

Yes it is Frustrating Tracker - and whilst I am no fan of Life Offices - I do have some sympathy for the annuity providers.

 

The medical profession keep extending our lives - now gene therapy looks to possibly extend life substantially!

 

http://www.sciencedaily.com/releases/2012/05/120514204050.htm

 

"First Gene Therapy Successful Against Aging-Associated Decline: Mouse Lifespan Extended Up to 24% With a Single Treatment

 

May 14, 2012 — A new study consisting of inducing cells to express telomerase, the enzyme which -- metaphorically -- slows down the biological clock -- was successful. The research provides a "proof-of-principle" that this "feasible and safe" approach can effectively "improve health span."

 

Imagine being an annuity provider where you have calculated that on average everyone will die by age 85/90 - and you are contracted to pay income to your annuitants until they die - and then they all end up extending their lives by, say, 24% and your financial liability increases by that amount.!

 

I am sure our collective heart bleeds for them - but I think we do need to appreciate that what with lower interest rates AND the prospect of ever increasing lifespan - annuity rates are not going to increase for some time.

 

And that makes saving via a pension pot - unless you are a HRTP, or your employer pays a large chunk, or salary sacrifice makes sense, of dubious long term benefit both for now and in the future.

 

 

[CliveH]

Dave225 - 2014-01-24 8:44 PM

 

Clive,

 

All you say is true but always forgets that most people are not in the brackets you define. If I had a 200K pension pot I would not be worrying, and yes, I would get someone to look after it for me. But the original discussion was about pension pots of £18000 or less, a totally different thing.

 

If you are on the normal scale of things many people find that on retirement their income is around the tax threshold so the differences are not nearly so marked. Yes ISA's are Capital Gains tax free but if you have investments whereby your profit from selling is over £10900 per year then you have quite an income. Plus all ISA investments carry charges. Not excessive but there every year and again it is the size of the investment that will define whether this is the best way forward. A non ISA investment is income tax free if you are a basic rate tax payer, again if you are on higher rate tax, then this discussion is not for you as you will be supping Champagne cocktails somewhere and letting your highly paid adviser do the work for you. Bluntly, at the bottom end the difference is marked more by the charges than the savings.

 

I am not knocking ISA's, we do have some but I am also very suspicious when so called financial advisers stress 'this is the only way to go' After all these are the same advisers who a few years back advised everybody to get Endowments and Pensions, which some of us now have to sort out. The track record is not very good is it? Plus there is no guarantee that future Governments may not change the rules on ISA's, after all they are greedy b......s are they not? We have already seen a squeeze on cash ISA'a being transferred to better homes, why not the rest? Do you really wish to tell me that you believe Balls will do a good job when he gets his hands on the cash tills? The other factor is that there is a limit on an annual investment in ISA's as you have stated. You cannot put £200k into an ISA unless you take 17 years doing it. If you are retired then it is possible you may not have that time and what do you do with the the rest of the 200K in the meantime. You cannot take the cash so it is either an annuity or drawdown, and even that is suspect for future changes.

 

 

Sorry Clive, I know you mean well, but you do really need to get out of the office sometimes and see the real world. Most of us do not have 200K pension pots unfortunately.

 

Hi Dave - the ISA limit will be £11,760 from April and for the rest of the fiscal year it is £11,520 - so if we say £11,500 for ease then a husband and wife could invest circa £23,000 a year if they wished. So to get a "pot" of £200K then it would take just 8.7 years assuming no growth at all.

 

And don't forget that you can contribute your entire salary - up to £50,000 a year - into a pension - so if you were to build up a substantial pot in an ISA as you approach retirement - you could use this money to enable you to pay large sums into a pension should the financial circumstances of the day make this option worthwhile.

 

In contrast - put money into a pension and you are stuck with the pension rules that significantly limit your access.

 

On charges - Fund supermarket and Wrap charges on an ISA are significantly less because ISA legislation is simple and reporting to HMRC is virtually non-existant - In marked contrast HMRC demands significant reporting by Pension Providers and that is a real cost burden.

 

You may remember that HMRC "lost" client data on more than one occasion when it was returning data to Standard Life and a couple of other providers. This level of reporting is costly and that means pensions cost more to run than ISA.

 

This from back in 2007:-

 

"Data lost by Revenue and Customs

 

 

STANDARD LIFE CUSTOMERS, NOVEMBER 2007

 

More than 15,000 Standard Life customers were put at risk of fraud after a courier lost a computer disk containing personal information.

 

The data was on a computer disk sent from the HMRC National Insurance contributions office in Newcastle to the insurer's headquarters in Edinburgh.

 

But the disk containing names, national insurance numbers, dates of birth and pension data never arrived.

 

HMRC routinely sends computer disks containing personal data on taxpayers to the insurance companies that hold their pensions.

 

............................

 

As I say - no such reporting is required for ISA's - this reporting cost on pensions is reflected in that contracts charges.

 

You pays your money - you takes your choice.

 

 

[laimeduck]

CliveH - 2014-01-25 1:07 PM

 

And don't forget that you can contribute your entire salary - up to £50,000 a year - into a pension - so if you were to build up a substantial pot in an ISA as you approach retirement - you could use this money to enable you to pay large sums into a pension should the financial circumstances of the day make this option worthwhile.

 

 

Clive can you clarify this for me please? How can an ISA be paid into a pension?

My time is fast approaching!

Thanks

Jeremy

[CliveH]

Hi Jeremy

 

The simplest way is to obviously accrue funds into an ISA such that you have a few thousand to play with. Just for an example lets say you have accrued £100,000 in an ISA and that as you approach retirement, annuity rates (and the GAD rate that governs what you can take out of Drawdown as income) have increased such that putting money into a pension makes more sense than it does now.

 

Full details with several excellent links are available at:-

 

http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm

 

If your salary is, say £40,000 (the limit falls from £50K to £40K next year) a year you simply pay the net amount of whatever you want to contribute into a pension plan. It can be into the scheme of your employer or it can be a totally separate scheme if you wish (some people prefer that their employer does NOT know what their retirement plans are)

 

Alternatively you can be open with your employer and if you are happy with that, the option above still stands but you could ask if they will consider Salary Sacrifice - this has the enormous benefit for the employer in that they save the 13.8% employers NIC - They may rebate some of this into the plan for you as well.

 

So with the first option - you take your salary as normal - but take the money that you have in the ISA and pay the net amount into a private scheme separate to that of your employers. The contributions are paid net of BRT and HRTRelief claimed via a Tax return.

 

If you are happy to use the Employers scheme, the second option gives you two choices, the income that you no longer receive via salary can be placed in the scheme as an employees contribution or if your employer is agreeable salary sacrifice, so that the employer makes the contribution on your behalf.

 

So in the first option you pay some of the accrued ISA direct into a personal pension, whereas with the second option your contribute into the employers scheme (either via e'ee or e'er contributions) and then you use some of the accrued ISA fund to live on.

 

The point is that by using an ISA you can chose your best option

 

PM me if you want more specific info.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Brian Kirby]

Dave225 - 2014-01-24 8:44 PM

 

Clive,

 

All you say is true but always forgets that most people are not in the brackets you define. If I had a 200K pension pot I would not be worrying, and yes, I would get someone to look after it for me. But the original discussion was about pension pots of £18000 or less, a totally different thing. ...............

Dave, I think you are being a little hard on Clive. He is, IMO, right. The obvious proviso is that to have a choice one has a) to have been self employed and done well, or b) to have worked for a firm with no pension scheme and done well, or c) just to have done well. 'Twas ever thus!

 

If one worked for an employer who provided a pension scheme and a modest salary that's yer lot, take it or leave it - and I don't think one can actually leave it! If one didn't do well, or one didn't start pension or savings provisions 40 odd years ago, one is inevitably liable to have lost out.

 

What you say is true, to the extent it reflects the circumstances of those who didn't act when they ought, or didn't earn enough to accumulate an adequate pot. However, none of that is the fault of pensions or ISAS, or IFAs: it is just life, and for some it doesn't come out well. Folk can reasonably blame bad career choices, investment decisions, inherited genes, or even when they were born, for their not having the wherewithal, but for those who have it, and so the ability to choose, ISAS are a very good alternative to the restrictions and complexities of pensions products. I think that is all Clive is arguing.

[derek pringle]

CliveH - 2014-01-25 3:51 PM

 

Hi Jeremy

 

The simplest way is to obviously accrue funds into an ISA such that you have a few thousand to play with. Just for an example lets say you have accrued £100,000 in an ISA and that as you approach retirement, annuity rates (and the GAD rate that governs what you can take out of Drawdown as income) have increased such that putting money into a pension makes more sense than it does now.

 

Full details with several excellent links are available at:-

 

http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm

 

If your salary is, say £40,000 (the limit falls from £50K to £40K next year) a year you simply pay the net amount of whatever you want to contribute into a pension plan. It can be into the scheme of your employer or it can be a totally separate scheme if you wish (some people prefer that their employer does NOT know what their retirement plans are)

 

Alternatively you can be open with your employer and if you are happy with that, the option above still stands but you could ask if they will consider Salary Sacrifice - this has the enormous benefit for the employer in that they save the 13.8% employers NIC - They may rebate some of this into the plan for you as well.

 

So with the first option - you take your salary as normal - but take the money that you have in the ISA and pay the net amount into a private scheme separate to that of your employers. The contributions are paid net of BRT and HRTRelief claimed via a Tax return.

 

If you are happy to use the Employers scheme, the second option gives you two choices, the income that you no longer receive via salary can be placed in the scheme as an employees contribution or if your employer is agreeable salary sacrifice, so that the employer makes the contribution on your behalf.

 

So in the first option you pay some of the accrued ISA direct into a personal pension, whereas with the second option your contribute into the employers scheme (either via e'ee or e'er contributions) and then you use some of the accrued ISA fund to live on.

 

The point is that by using an ISA you can chose your best option

 

PM me if you want more specific info.

 

[/quote

Hi Clive,

I think it is only fair to point out that Salary Sacrifice may be beneficial to the Pension part of an employees terms but CAN carry consequences in other areas, that is to say, to qualify for a true salary sacrifice sanctioned by the Inland Revenue then your new salary[ after sacrifice element deducted] must be your TRUE salary. Therefore if an individual had other benefits based on salary they would be reduced. Main ones coming to mind would be for instance if the Company awarded a 5% increase in pay, then this would be 5% of your new lower salary. Or indeed worse case scenario if a person was made redundant, their severence figure would be reduced accordingly. Ther are ways around these problems but it needs work and a great deal of cooperation from the employer.

cheers

derek

[derek pringle]

Hi all,

Another thing to note is that as employers will only normally contribute to their own company pension scheme on behalf of their employees, it is a no brainer for people as if they do not join the scheme they are turning their backs on wahat could be a reasonable ' free' contribution. Some forward looking Companies are now looking in to 'Flexible Benefits' for their employees whereby an individual can take the salary or the pension contribution. This way the employee gets the benefit but can use the money for any particular pension scheme or path they choose.

cheers

derek

[CliveH]

Yes indeed Derek - I agree with both of your points.

 

In fact I have mentioned them and other negatives of Salary Sacrifice in the "copious" (lol) previous posts!

 

Overtime rates, Mortgage borrowing, Salary related State benefits - are all compromised by these arrangements - but where someone is within a few years of retirement - and have alternative sources of income - these schemes are certainly popular.

 

But for "youngsters" - especially if they want to purchase a house - is such a scheme really a good idea?

 

I have my doubts.

 

And if - as has been suggested - an employer introduces such a scheme - the employees that are disadvantaged would be able to take action against their employer. That is why, bonus or salary sacrifice has to be at the request of the employee and a clear audit trail of this request has to be on file.